Ruling and Opposition Parties Alike Call for Consumption Tax Cuts; All Proposals Fail to Identify Sources of Funding

By Ryosuke Okada and Takafumi Yamasaki / Yomiuri Shimbun Staff Writers

1:00 JST, May 3, 2025

Ruling and opposition parties have begun to call for cutting consumption tax rates as a measure to mitigate the impacts of U.S. tariff hikes and rising prices. The revenue from consumption taxes is meant to be used to finance social security benefits. Yet these politicians have gone ahead without bothering to figure out where they will find alternative sources of funding for these services.

The parties’ calls for cuts give the strong impression that they are aimed purely at winning the support of voters ahead of this summer’s House of Councillors election.

“Rising food prices will cause trouble for many households. The consumption tax rate on food items should be reduced to zero for two years,” said Hirofumi Yoshimura, leader of the opposition Japan Innovation Party, to reporters at the Osaka prefectural government building Thursday.

Another opposition party, the Constitutional Democratic Party of Japan, plans to include a proposal to cut the consumption tax rate on food items to zero in its campaign pledge for the upper house election. The Democratic Party for the People calls for uniformly lowering the tax rate to 5%. Ahead of the election this summer, major opposition parties are all calling for reducing consumption taxes.

Komeito, the junior coalition partner of the ruling Liberal Democratic Party, also plans to include a consumption tax cut as one option in a package of economic strategies to be compiled in June.

Many Liberal Democratic Party members, especially those in the upper house, insist that the LDP should promise to cut consumption taxes to counter the opposition parties and avoid letting the issue become a point of contention in the upcoming election. LDP executives in the upper house conducted a survey of its member lawmakers in April and found that 80% of respondents agreed with the idea of cutting consumption tax rates.

However, LDP leadership, including Secretary General Hiroshi Moriyama and General Council Chair Shunichi Suzuki, are strongly opposed to consumption tax rate cuts. On April 30, speaking to reporters during an official visit to the Philippines, Prime Minister Shigeru Ishiba, who is also LDP president, expressed negative views to these proposed cuts, saying that such measures “would also reduce the burden on high-income earners.”

Nonetheless, though the government and the LDP are considering providing cash benefits to low-income households due to high prices, they lack campaign pledges that will be appealing to voters in the upper house election. “Ishiba is secretly interested in cutting consumption taxes,” a senior government official said.

Massive tax revenue loss

If the tax rate is reduced as demanded by the CDPJ and the JIP, it is projected to result in a total loss of around ¥5 trillion in tax revenue annually for central and local governments. If the rate is reduced to 5% as called for by the DPFP, the loss is expected to balloon to an estimated ¥15 trillion a year.

Integrated tax and social security reform legislation, of which a major feature was a consumption tax hike to 10%, was established in 2012 under an administration led by the former Democratic Party of Japan.

The legislation stipulates that all revenue from the consumption tax hike is to be used to pay pension benefits, support child-rearing and finance social security benefits including medical care and nursing care. If a revenue shortfall occurs, it could undermine the reliability of the public pension system, affect the development of medical and nursing care facilities and even spur a further decline in the birthrate.

Criticized as ‘handouts’

“We will not rely on deficit-covering government bonds or increase the burden on future generations,” CDPJ leader Yoshihiko Noda, who advanced the 2012 integrated reform, stressed at a press conference on April 25. The CDPJ is considering using temporary government funds to make up for the potential loss of tax revenue.

DPFP leader Yuichiro Tamaki proposes to issue deficit-covering government bonds and use government funds as alternative sources of funding, among other measures. “We do not necessarily need permanent sources of funds,” he said.

Komeito leader Tetsuo Saito said, “We will also show alternative revenue sources at the same time as making our proposal.” However, the party is having difficulty finding permanent sources of funds for that. Masaji Matsuyama, secretary general for the LDP in the upper house, has suggested that they would be able to use the portion of tax revenues that exceeded projections and the foreign exchange fund special account as alternative funding sources.

All parties have failed to propose stable alternative revenue sources to cover the loss in tax revenue that their proposed cuts would bring. “These are all handouts devised with nothing in mind aside from winning popularity from voters,” said an LDP’s former finance minister.